BREXIT: The mother of all uncertainties

BREXIT: The mother of all uncertainties

A Note from Paul Ekins

Director of UCL Institute for Sustainable Resources, University College London

&

Chairman of Green Budget Europe Advisory Committee

 

 

So the British people have voted by a margin of around 4%, a little more than 1 million votes, to leave the European Union (EU). Where this will lead lies somewhere between two absolutely contrasting scenarios.

On the positive side, we can imagine that the months before the election of the new British Prime Minister in October see some healing of the great divide that has opened up in the UK, a decision by Scotland not to pursue independence, and Sinn Fein not to pursue a referendum on Irish reunification, a steadying of the economy by the Bank of England and current Chancellor, and with that a steadying in both the stock and currency markets. Then, in October or November, the new Prime Minister presses the button on Article 50, to be met by a conciliatory European Commission which, over time, makes it clear that UK Associate Membership of the Internal Single Market can indeed be accompanied by restrictions on EU freedom of movement and less need for the UK to implement EU legislation. This takes the heat out of the UK Brexit impulse, so that agreement on UK/EU terms of engagement, which involves minimal disruption to trade and investment, swiftly follows. Businesses and the financial sector heave a sigh of relief and get on with business as usual. The damage of Brexit to the UK and EU economies, and to the UK and EU politically, is minimal, far less than was forecast by practically everyone. ‘Experts’, especially economists, become the butt of more jokes. In five years’ time the UK’s position in Europe is a bit like Norway’s, but immigration has been restricted by the new curbs on freedom of movement. Leavers are delighted and say ‘I told you so’. Remainers are mightily relieved that the meltdown they feared has not occurred. The curbs on the freedom of movement of labour are used by other EU Member States to take the heat out of their populist movements. The EU continues more or less as before.

The negative side is the mirror image of all this. Reconciliation fails to take place. Scotland pursues its independence referendum by refusing to permit the UK Parliament to implement Brexit legislation. The Good Friday agreement on Northern Ireland becomes a dead letter and violence breaks out again between ‘loyalists’ and ‘republicans’. The European Commission makes clear to the new British Prime Minister that membership of the Internal Single Market requires freedom of movement of labour and full implementation of EU law. Brexiteers, reinforced by a General Election, reject these terms and the UK leaves the Internal Single Market. So do many financial firms currently in the City of London, setting up European offices in Paris or Frankfurt where they can continue with their Euro-trade. Investment in UK businesses falls, and capital flight to less uncertain economies gathers pace. The UK goes into recession and there is serious social unrest. Brexiteers blame ‘Europe’ for the mess. The Remainers blame the Brexiteers. While the ‘experts’ can say ‘I told you so’, few do so, and even fewer do so with any pleasure. They are too concerned to reduce the damage of the fallout to the UK and EU economies, and more widely. As for the politics, the only thing that is certain is that the UK has ceased to exist in its pre-referendum form, and even after five years no-one knows what constitutional shape these islands might fall into. In respect of the EU, populist movements in other countries have thrived, even as their economies have been hit by the recession in the UK and overall economic uncertainty. Some other countries have also left the EU. The EU as currently conceived has also effectively ceased to exist.

Of course the two scenarios are not exclusive, and many other narratives are possible. Scotland leaving the UK and staying in the EU is consistent with a conciliatory European Commission approach. Or a conciliatory European Commission approach may just give further encouragement to right-wing populism in other countries, and lead more quickly to more countries leaving the EU, as they perceive the costs to be low. On the other hand, a hardline response from the European Commission might cause the British Parliament and people to think again, with a General Election seeing the explicit election of pro-EU candidates, or even leading to a second referendum which sees victory for the Remainers.

All that can be said for sure at this stage is that the situation is very uncertain and very dangerous. Where it will end up is anybody’s guess. Until there is far more clarity as to how it might be resolved, I don’t see anyone giving much thought to GBE’s core concern of fiscal reform to improve the environment and mitigate climate change. Just as we thought we had sort-of got over the financial crisis, we are hit by something which could challenge the entire political and economic basis of the whole post-war settlement for Europe. But it might not. I very much hope that this is latter outcome is the case.

Paul Ekins has a Ph.D. in economics from the University of London and is Professor of Resources and Environmental Policy and Director of the UCL Institute for Sustainable Resources at University College London. He is also Deputy Director of the UK Energy Research Centre, and is the Co-Director in charge of its Energy Resources theme. He was a Member of the Royal Commission on Environmental Pollution from 2002-2008, and has extensive experience in consulting for business, government and international organisations.

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